Airborne Express Case Study 1

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Executive summary
Airborne Express is the third largest and fastest growing international air express delivery company in America. It held roughly 16% of the domestic express mail market by 1997. It provides time-sensitive delivery of documents, letters, small packages, and freight in the United States and internationally. The company has several advantages over its rivals, such as it provides delivery services at a lower cost of up to 20% over FedEx and UPS; it operates the nation’s only privately owned foreign trade zone in Wilmington; it is more flexible and provides more customer-tailored services. It charges lower price but still much guarantee delivery dates (not offered by the US Postal Service). A general acceleration in the pace of business and shorter fashion cycles in other industries tended to broaden the customer base and to increase the express volume shipped by each customer for the express industry. However, since prices have fallen, total revenues of the industry have grown less than the increase of volumes it has shipped. The Airborne Express should focus on sale and low-cost strategy in order to achieve its long-time goals. It should also start its distance-based-pricing strategy and try to expand its business at the time when it is positively affected by the strike. This case study of Airborne Express is an analysis of the company’s development, advantages and financial results compared to its two main strong competitors— Federal Express (FedEx) and United Parcel Service of America (UPS). The information provided was happened in 1997. For now, the information and strategic point of the company may be changed. But for the industry may still be the same. The US Express Mail Industry

The express mail industry in the United States is quite concentrated with an economy of scale (marginal cost is very low). 85% of the market is served by the big three providers – Federal Express, United Parcel Service and Airborne Express. Six other second-tier players serve the remaining market. FedEx and UPS lead the industry in service and technology development. The trends of the industry are involved in the following factors. Services: express services have proliferated and kept being innovated in the past decades. Companies started to offer next-afternoon delivery, second-day service, third-day delivery, and same-day or early morning delivery. Major delivery companies make it possible for customers to track shipments en route. Shipment volumes have risen for the past decade. But due to the decrease in price, total revenues have not risen as much as volumes. Customers: virtually every business and many individuals use express delivery services. The items shipped usually have a high ratio of value to weight. The portion of goods considered perishable or time-sensitive have increased over time. A general acceleration in the pace of business and shorter fashion cycles in more and more industries also tended to broaden the customer base and to increase the express volume shipped by each customer. Customers have different criteria to decide which carrier to use. Many factors involved in this dynamics. But discounts based on volume encouraged customers to focus on one carrier. Customers are usually not loyal as switching costs are negligible. The urgency of the shipment and price play dominant roles in influencing a customer’s decision to ship by express mail rather than normal mail. Operations: the big three route more than 5 million packages each day with over 98% arrive on time. The basic infrastructures and activities are similar. Most of the carriers use hub-and-spoke model. Every afternoon the drivers collect packages and scan the barcode into the computer system. Packages are driven to the airport, sorted, and then loaded onto the cargo airplanes, going to different destinations. Priorities are given the early-next mails. Planes land and take off all the night. Mails for second-day delivery are generally sent by...
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